Amazon Not Liable for Patent Infringement When Other Companies Sell Infringing Products on Amazon's Website

Authored by D. Brian Kacedon, John C. Paul, and Sonja W. Sahlsten

Abstract

A Washington court recently held that Amazon was not liable for patent infringement when other companies sold infringing goods on Amazon's website because it found that Amazon itself did not offer to sell infringing goods or engage in any other infringing acts.

Patent infringement can occur by making, using, importing, offering to sell, or selling a patented product. If the infringing act is offering to sell an infringing product, it is imperative to identify who made the offer in order to properly assign liability. In the e-commerce marketplace, this can be complicated.

Recently, in Milo & Gabby v. Amazon.com,¹ the U.S. District Court for the Western District of Washington found that Amazon did not "offer to sell" goods that third-party retailers offered to sell or sold on Amazon.com. However, the court stated that it was "troubled" by its own decision and its potential implications on patent infringement law in an era of ecommerce.

Background

Milo & Gabby, LLC (Milo & Gabby) sued Amazon.com (Amazon) for design patent infringement, accusing Amazon of infringing its protected animal-shaped pillows. Milo & Gabby is a small, family-owned business that has design patent protection for its line of children's products, which are combinations of stuffed animals and pillows. The case began when a foreign manufacturer made copies of the pillows and created sale listings on the Amazon.com platform.

Amazon allows third party sellers to list, sell, and distribute products to Amazon customers. The sellers create their own listings and set the product price. Amazon gives the sellers the option to ship their products to customers directly or to use the "Fulfillment by Amazon" (FBA) service. If the seller elects FBA, Amazon handles storage, shipping, and returns of the product.

The counterfeit goods were almost indistinguishable from the Milo & Gabby pillows, and the product listings on Amazon's website even used Milo & Gabby's original product images. Some sellers of the counterfeit products chose the FBA program and elected for Amazon to store and ship the goods itself. When Milo & Gabby became aware of the listings and informed Amazon, Amazon investigated the accusations and removed the products from its online store.

Milo & Gabby sued Amazon for offering to sell the allegedly infringing products on Amazon.com, alleging that Amazon was the true seller of the products because the infringing goods were listed on Amazon's online store, buyers made payments directly to Amazon, and Amazon advertised the products, issued the invoices, and shipped the goods. Amazon maintained that the true sellers of the products were the third-party sellers. Amazon argued that it had not committed any acts of infringement because it was not listed as the seller of record and did not create the listings for the accused products.

The Milo & Gabby Decision

Selling and offering to sell infringing products are distinct acts of patent infringement. Offering to sell an infringing product is an infringing act even if the offer is never accepted or the product is never sold. Whether there has been an offer to sell is a question that courts decide, but is based largely on factual questions that the jury decides.

After a three day trial, the jury determined that Amazon did not communicate or set the price, description, or quantity of the goods and did not otherwise indicate that it was willing to enter a bargain to sell the goods. Accordingly, the jury determined that Milo & Gabby had not proven that it was more likely than not that Amazon had offered to sell the infringing products.

Considering the jury's findings, the court held that Amazon had not offered to sell the allegedly infringing products. The court expressed "difficulty" in reaching this decision and admitted that it was "troubled by its conclusion and the impact it may have." Specifically, the court was troubled that under current law, Amazon could allow sellers to list and sell almost anything on its platform and still avoid responsibility for offering to sell potentially infringing products. The court observed that this is an example where "the law lags behind technology" and suggested that Congress, rather than the courts, should address the issue.

Strategy and Conclusion

The Washington court concluded in this instance that Amazon was not liable for patent infringement when other companies sold infringing goods on Amazon's website. While this conclusion provides some guidance to online retailers, the court's discomfort in reaching the conclusion creates uncertainty in whether it or other courts would reach the same conclusion in related cases, particularly if the facts are different or if a jury reaches a different conclusion based on the facts before them as to the involvement of the online retailer in the offer or the sale of infringing products. The broader effect of the decision is also uncertain in light of an appeal of the decision to the Federal Circuit, possible legislative action that may result from the court's suggestion that Congress address the issue due to the court's perception that the law is lagging behind the current technology in the marketplace, and possible public reaction to the court's decision and the effect of that reaction on Congress and the courts.

Endnotes

¹ The Milo & Gabby decision can be found at http://www.finnegan.com/files/upload/LES_Insights_Column/2015/wawd-2-13-cv-01932-152.pdf.